Though many conditions are right, companies have their reasons for not acquiring

Jim Hill is executive chairman of Benesch, chair of the firm's private equity group and an active and practicing member of its corporate and securities practice group.

Whether it be consolidation of market share, elimination of competition, adding new technology, becoming multinational or adding product lines, there are many reasons for companies not owned by private equity firms to be acquiring businesses.There is more than $2 trillion in excess cash on corporate balance sheets.Economic growth is relatively anemic in the United States and around the world; even China's growth has slowed. This provides evidence that organic growth at many companies will not suffice and acquisitive growth is paramount.Yet the pace of strategic acquisitions is of a low velocity. Why?Many would-be strategic acquirers remain cautious about the outlook for the economy, and with the Federal Reserve now suggesting that its policies will cause interest rates to rise, many are unsure of the cost of acquisition dollars in the future, though many do not need outside financing.Strategic acquirers oftentimes do not like to be in an auction process with financial buyers; if they are not singled out for “fireside chats” pre-auction, then they will not energetically participate in an auction. Auctions are fast-paced and deliberate, and good investment bankers push the process. That often is difficult for a strategic buyer to follow, given its own decision-making bureaucracy.Plus, public strategic buyers know that unless they are buying something innovative — be it technology or new products lines as examples — buying smaller businesses will not “move the needle” with regard to their public stock price. Acquisitions require much planning and integration. If the target is relatively small in revenue or EBITDA (earnings before interest, taxes, depreciation and amortization) size, the public strategic buyer may not have much interest.Many middle-market strategic buyers not owned by private equity firms (which have a strong corporate finance team to supplement the portfolio company) do not have the infrastructure to undertake an acquisition program. They do not have a deep, if any, corporate development team and they do not have an integration team. Acquisitions, while they may make sense, are daunting and can consume the senior management team to a large degree. Outsourcing of the corporate development function makes a great deal of sense, but many potential strategic buyers do not want to create that overhead cost.Strategic acquirers read the studies that have been conducted on the success of acquisitions, post-acquisition, and they find the study results to be negative as to the limited positive outcomes. This is because many strategic acquirers do not have the integration teams mentioned above and this tends to make the boards of these strategic buyers more cautious in their approach to any acquisition.Finally, for both strategic and financial buyers today, the amount of “inventory,” or companies for sale either through an auction or otherwise, is quite limited. The reasons behind that are a blog for another day.

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